We have experienced quite a lot in 2020. Many people have lost jobs, fell sick, became stressed and depressed, and whatnot. We can’t control everything but what we can do is plan our finances such that we can tackle financial changes in our life.
Here are a few things that you should do in 2021 to financially prepare yourself for a better financial future.
Love to budget and plan a realistic one
It is time to review your budget. You can’t follow a budget for a lifetime. And, you have to plan on your own. No one else’s budget will fit your financial life. You will have to take into account your goals and plan a budget that you can follow with ease.
To plan a new budget, identify what you value most in your life. Along with it, you will have to write your income and expenses as well.
The three pillars of planning a budget are to track your spending, automate your savings, and build a good emergency fund.
When planning your budget, you can break it into a 15-day budget if you earn a paycheck twice a month.
Many budgeting strategies are there; choose one as per your suitability. You can follow the 50-30-20 strategy, envelope strategy, etc. that suits you the best.
Build a hefty emergency fund
An emergency fund is always a savior. But, just having such a fund is not enough. First of all, calculate how much you need to sustain a month. Then, multiply it by six. It is a good emergency fund if you have six months’ worth of your expenses. By doing so, you won’t have to worry about job loss or a pay cut. You can stay stress-free since you know that you can tackle any financial emergency without falling into debt.
Make sure you don’t use the fund for anything else no matter however tempted you are to do so. And, once you use a portion of your fund, make room in your budget to save the required amount.
Also, your emergency fund should increase based on your lifestyle changes.
Contribute to your retirement savings to the maximum
We have learnt that life is uncertain. Therefore, when the time is favorable, you should take full advantage of it. Increase your retirement savings to the fullest, as much as you can. If you have an employer-sponsored retirement plan like a 401(k), contribute to it the maximum amount to get the maximum employer match.
The experts always advise starting saving for retirement from the month you earn your first paycheck. So, all you young people who’ve got a new job, start your retirement planning early.
And, if you are already retired and close to 72 years of age, prepare for required minimum deductions in your financial plans to avoid additional tax burden.
Invest in yourself to reap the benefits in the future
You need to save for yourself first so that you can invest for a better return in the future. Then, you can manage your expenses with the remaining amount.
Do not waste time and start investing now.
First of all, set your goals, say, what you want to financially achieve, say after 10 or 20 years.
Saving early can help you take advantage of compound interest from many investments as well.
Talk to an experienced person and plan your investments. It is advisable to build a diversified portfolio. Even if you incur a loss in one investment, you can recover the loss with another.
Also, automate your savings so that a certain amount goes directly to your chosen accounts. By doing so, you won’t have to save the amount yourself and you will not miss a deposit.
Do you have adequate insurance coverage?
Insurance policies are there to protect you when time is not so favorable. It can help you tackle financial emergencies provided you have adequate coverage.
First of all, review your health insurance policy. Will your coverage be enough if you or your family members need to be treated for the pandemic or some other diseases? Many people have experienced that even careful planning wasn’t enough to cover certain medical expenses and they incurred medical debt.
If required, talk to an insurance adviser and review your car insurance and home insurance policies as well, so that you are well covered.
And, if you have dependents, then adequate life insurance coverage is a must.
Keep debt away and repay if you have any
Debt, specifically unsecured debt, is the worst enemy of your finances. When you have debt, you can’t save enough to accomplish your goals. All your savings are utilized to satisfy your debt payments.
Therefore, make a resolution to repay your credit card bills at every billing cycle. Do not take out payday loans.
And, if you have debts to pay off, act fast and pay them back as fast as you can. Plan to repay it within six months. You can opt for debt consolidation with low monthly payments to pay back multiple dues with ease. Or, you can opt for settlement if you can’t repay your debts in full. You can take professional help or do it on your own if you can negotiate with your creditors.
Increase your earning a bit
Be it paying back debts or saving an amount to invest, earning a little extra always helps. So, update yourself so that you can grab a better job. Or else, you can use your leisure time and do some side gigs as per your choice.
Remember, even earning an extra 1oo dollar a month can help to improve your finances.
So, what do you think? Is it very difficult to do these things? No, right? Then, start doing these things from today and a better financial future will be awaiting you.